Aug. 28 (Bloomberg) -- The potential for mergers and
acquisitions within the U.K. water industry still exists even
amid a regulatory price review as the low cost of debt among the
companies is attractive, according to JPMorgan Chase & Co.

“Further M&A in the sector cannot be discounted,”
JPMorgan analysts Edmund Reid and Chris Gallagher wrote in a
note to clients yesterday. “The recent Borealis approach for
Severn Trent shows that infrastructure funds are willing to look
through the regulatory review.”

LongRiver Partners, a group led by Canada’s Borealis
Infrastructure Management Inc., abandoned its 5.3 billion-pound
($8.2 billion) bid for Coventry-based Severn Trent in June.
Under local rules, bidders can’t return with a new approach for
six months. Severn Trent is the second-largest publicly traded
U.K. water company, trailing United Utilities Group Plc.

The shares of Pennon Group Plc, the U.K.’s third-largest
publicly traded water company, rose as much as 1.9 percent in
London today after JPMorgan raised its rating on the stock to
overweight from neutral.

The analysts cited Pennon’s lack of exposure to the review
that U.K. regulator Ofwat is conducting to set prices water
companies can charge from 2015 through 2020. Ofwat’s final
determinations are due to be published in December 2014.

In upgrading Pennon, the analysts noted its “sizeable
waste business Viridor, which means it has less exposure to the
review than its peers.”